The S&P 500 is likely to retreat to 1,330 as sluggish domestic growth, high oil prices and Europe’s debt woes take their toll on US stocks, according to Kevin Cook, senior stock strategist at Zacks.com.
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“This market is building a wall of worry,” Cook told CNBC recently. “The train has left the station and left a lot of fund managers behind who wish they’d bought. They all want a pullback and that’s why we’re not getting it at the moment. A pullback will be bought even before 1,330 on the S&P.”
In a note, Cook identifies a number of what he calls “bricks for a wall of worry” that could contribute to a retreat of the S&P 500 from the current levels, including a slowdown in the economy.
He believes that first quarter US gross domestic product growth could be close to 1 percent, as the 2.8 percent expansion seen in the fourth quarter of last year was largely due to inventory rebuilding.
Cook also says that the index could tilt downwards as earnings and sales forecasts at US companies become flat.
“These and other factors make a good wall for markets to climb near-term,” Cook said. “I'm a buyer of 3-6 percent pullbacks to S&P 1330 and 1300.”
Cook also warned that retail investors may be falsely lured into buying on the S&P 500 if it does climb higher.
“Retail investors are looking at these levels and saying: ‘This isn’t really the place to get in’,” Cook said.
“Unfortunately what tends to happen is that if we do get a surge towards 1,400, then you have this whole wave of optimism where people say ‘I can’t be left behind again’ and they pile in. And that’s when you get a good pullback. One more surge could pile a lot of people back in and then surprise everyone with a nice shocking pullback,” he added.